Why Foreign Brands Use Alibaba’s Tmall

Mar 26, 2014
Why Foreign Brands Use Alibaba’s Tmall
JURO OSAWA and KATHY CHU
When foreign brands try to sell their products online in China, it’s hard not to consider using Tmall, an online shopping mall run by Alibaba Group Holding. While some brands have stayed away from Tmall citing steep discounts and fierce competition on the site, other brands say the site’s ability to attract hundreds of millions of Chinese shoppers makes it a venue they cannot ignore.
European online fashion retailer Asos plans to open a Tmall storefront in late April, offering 50% off a cardigan sweater to drive shoppers to its site. Asos doesn’t operate on other online marketplaces in the world, but Tmall “is so important in Chinese e-commerce that it’s almost essential,” said Shaun McCabe, international director for Asos, which also operates its own e-commerce site in China.
Other foreign brands that have launched on Tmall in the past year include the National Football League, baby-goods seller Little Giraffe and AppleAAPL -0.11%. Tmall, which has more than 2,000 foreign brands and a total of about 70,000 sellers, controls 45% of online business-to-consumer retail sales in China, according to Euromonitor International.
“Tmall has its problems but is still the best marketplace (in China) for retailers,” said Yujun Qiu, an analyst at Planet Retail, a research firm.
Alibaba’s coming IPO–which is expected to be one of the largest public offerings in U.S. history–could boost the platform’s exposure and make it easier for Tmall to attract foreign brands, according to Paul McKenzie, an analyst at CLSA Asia-Pacific Markets. As China’s middle-class swells, consumers’ appetite for foreign brands is growing.
Casio Computer6952.TO +1.24%, the Japanese electronics maker known for G-Shock watches, digital cameras and calculators, opened its flagship store on Tmall in September 2011, after seeing China’s e-commerce grow much faster than the traditional retail market. Tmall is a venue not just for selling goods but also for getting Casio’s name recognized by Chinese consumers, says company spokesman Nobutaka Ishii. “Given how many users Tmall attracts, it’s impossible not to take advantage of it,” he says. Other than Tmall, Casio’s products are also sold on other major Chinese e-commerce sites such as JD.com.
Apart from Casio’s own flagship store on Tmall, there are authorized Chinese distributors of Casio products running their stores on Tmall, according to Ishii. While this could create price competition between multiple Tmall stores selling Casio products, Ishii says such competition isn’t unusual, because a similar situation exists in the offline retail market, where brick-and-mortar distributors may give deeper discounts compared with Casio’s directly-run stores.
In November last year, Casio opened its own online store in China as a standalone website. But that doesn’t mean the company’s Tmall store will play a less central role, Ishii says, noting that there is a huge difference between Tmall’s user traffic and that of Casio’s own website. Standalone websites would need to spend heavily on search-engine advertising and other costly means to generate traffic.
Casio also sells its products at various brick-and-mortar stores in China. The company has directly-run retail stores for its watches, which are also carried by some department stores. Its digital cameras are sold at electronics retail stores and computer centers. As online sales keep growing in China, one challenge is how its brick-and-mortar stores–especially its flagship stores–can offer an experience online stores could never replicate, Ishii says.
Casio, which forecasts revenue of 322 billion yen ($3.15 billion) for the current fiscal year ending this month, says China accounts for roughly 10% of its revenue. Over the next two years, the company aims to increase its China revenue to 50 billion yen.